From the Point When a Director’s Position Becomes Adverse to the Corporation, the Director Is Not Entitled to Discovery of the Corporation’s Attorney-Client Communications

Plaintiff was both a shareholder in and a director of defendant corporation. In her role as a shareholder, plaintiff brought a special proceeding to compel the corporation to pay the fair market value of her shares pursuant to Business Corporation Law section 623.  The special proceeding was prompted by the corporation’s sale of a 65% interest in the business to a third-party investor—a sale to which plaintiff objected.  During the course of discovery, the defendant corporation’s lawyers turned over thousands of documents to the plaintiff.  Included in those documents were attorney-client communications which took place after plaintiff had voiced her strong objection to the sale of the 65% interest in the business. The motion court determined that the plaintiff, as a director, was a corporate insider by definition, and was therefore entitled to all the corporation’s attorney-client communications, even those communications which took place after she voiced her opposition to the sale.  The First Department reversed.  The Court determined that, once plaintiff objected to the sale and hired her own attorney, her interests became “adverse” to those of the corporation, and she was not entitled to the attorney-client communications made after that point. [There is a long dissent arguing that, pursuant to CPLR 5511, the appellants were not aggrieved by the ruling appealed from and, therefore, the First Department did not have jurisdiction to entertain the appeal.] Barasch v Williams Real Estate Co. 2013 NY Slip Op 01613, 7405, 500054/09, 1st Dept. 3-14-13